Warren Buffett's $ 10 Billion Mistake: Precision Castparts

© Reuters. FILE PHOTO: Warren Buffett speaks with Mark Donegan, CEO of Precision Castparts, during Berkshire Hathaway's annual general meeting in Omaha Nebraska

From Jonathan stamp

(Reuters) – Warren Buffett makes mistakes too.

The 90-year-old billionaire admitted on Saturday that he "paid too much" when his Berkshire Hathaway (NYSE 🙂 Inc spent $ 32.1 billion in 2016 on the purchase of aircraft and industrial parts maker Precision Castparts Corp, his largest acquisition.

Berkshire wrote off Precision's $ 9.8 billion value last August as the coronavirus pandemic weighed on demand for air travel and the products of the Portland, Oregon-based unit.

In his annual letter to investors, Buffett said he "bought a good company – the best in his business," and Berkshire was "fortunate" to have Mark Donegan, Precision chief executive, remain in charge.

But Buffett said he was "just too optimistic about PCC's normalized earnings potential".

Precision cut more than 13,400 jobs, or 40% of its workforce, in 2020 and only recently started improving margins, Berkshire said.

"I was wrong … in assessing the average size of future revenue and, consequently, in calculating the reasonable price for the business," wrote Buffett. "PCC is a long way from my first mistake of its kind. But it's a big one."

Two years ago, Buffett admitted he "overpaid" for Kraft Foods when Berkshire and private equity firm 3G Capital struck up their H.J. Heinz Co merged to form Kraft Heinz (NASDAQ 🙂 Co.

In his 2008 annual letter, Buffett described his 1993 purchase of Dexter Shoe as his "worst deal" ever. He said he bought a "worthless business" and compounded his mistake by using Berkshire stock instead of cash to fund the acquisition.

"I will make more mistakes in the future – you can bet that," he wrote.

Tom Russo, a longtime Berkshire investor, welcomed Buffett's candor.

"I admire Warren for taking personal responsibility for Precision Castparts," he said. "Few managers are willing to admit their responsibility instead of passing the blame on."

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